Saudi ordered 72 Eurofighters in 2007 for £4.5bn, but the contract faced obstacles over escalating costs.

BAE said the new deal was an "equitable outcome" for both sides, although full details were not disclosed.

BAE warned last year that failure to agree a deal could hit earnings. Its shares rose 3% on Wednesday's news.

The new deal was negotiated mainly between the Saudi and UK governments. Now that this contract, known as the Salam program, has been secured, talks are expected to begin with the Saudis about buying dozens more Eurofighters.

BAE builds the fighter jet with European aerospace group Airbus and Italian defense contractor Finmeccanica.